Prosperity and Depression.pdf

Chap. 9Definition of the eyc/,the rate of employrrent have to be taken as criteria rather than thevolume of cOl~vumption.lOn the other hand, ifa community adds to it$ capital equipment,the volume of production may rise or remain constant. while thevolume of consumption falls. or does not rise so rapidly. In thiscase, clearly the volume of production and the rate ofemploymentshould be regarded as the true criteria.This situation frequently arises, to a greater or smaller extent,when business is recovering from a deep depression. Theproduction of producers' goods rises and additions are made tothe capital stock; but the flow of consumers' goods and servicesusually rises only to a lesser extent.We may conclude,that a combination ofthe threeConeJIIS;on. indices-(I) employment, (2) real income consumedand (3) real income produced-can be regarded asthe criterion of the existence, and measure of the degree, ofprosperity and depression and changes in the same. If all threeindices point in the same direction, the situation is clear. Iftheydiverge, it is as a rule possible to arrive at some indication on thebasis ofthe considerations above set forth.We shall see that the fluctuations are usually so ma.rked that thedoubtful cases .are of no practical importance. But, before weproceed to statistical examples, we may discuss briefly two othercriteria which are often used in the literature on the subject.Fluctuations in profits (and losses) are frequentlyOther regarded as the essential characteristic of thetriteria. business cycle : but it would not seem advisable torank them with the three fundamental elementsindicated above. The term" profit" is vague and misleading.What are recorded statistically .as "profits" (,.g., profits of corporations)do not consist purely of profits in the sense in whicheconomic theory uses the term: they are, rather, a mixture ofinterest, rent, monopoly gains, etc. Profits in the sense in whicheconomic theory uses the term are part of the national incomeI Volume of consumption can be taken as the criterion, if the timeelement is introduced. A community living on its capital is prosperousfor the time being; but the prosperity cannot last.